Greetings, and welcome to the REX American Resources Fiscal 2023 Third Quarter Conference Call. I would now like to turn the conference over to Mr. Doug Bruggeman, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining REX American Resources fiscal 2023 third quarter conference call. We'll get to our presentation and comments momentarily as well as your question-and-answer session, but first, I'll review the safe harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission including the company's reports on Form 10-K and 10-Q. REX American Resources assumes no obligation to publicly update or revise any forward-looking statements. I have joining me on the call today, Stuart Rose, Executive Chairman of the Board; and Zafar Rizvi, Chief Executive Officer. I'll first review our financial performance and then turn the call over to Stuart for his comments. We are very pleased to report these record net income and earnings per share quarterly results. Sales for the third quarter increased slightly compared to the prior year. Ethanol sales for the quarter were based upon 73.2 million gallons this year versus 66.3 million last year. The increase in sales volume were offset by lower pricing across all categories, largely reflecting commodity pricing for this time period. We reported a $30 million increase in third quarter gross profit to $39.3 million this year versus $9.3 million in the prior year as we benefited from lower corn and natural gas pricing over the prior year third quarter. SG&A increased from $5.8 million to $7.6 million primarily due to incentive compensation linked to the large increase in earnings. As mentioned in the second quarter, the company made a change in the method of accounting to begin classifying shipping and handling costs as cost of sales instead of within selling, general, and administrative expense as historically presented in order to improve the comparability of gross profit and SG&A reported. The company has applied a retrospective application of its new accounting policy. This change only impacts cost of goods sold and selling, general and administrative expense and has no impact on the earnings reported. We had income of $4.7 million from our unconsolidated equity investment in this year's third quarter versus $661,000 in the prior year, primarily reflecting the improved industry operating conditions for this time period. We reported interest and other income of $4.9 million versus $2 million in the prior year. The increase primarily reflects increased interest rates as well as $862,000 from COVID relief grants received from the USDA during this quarter. Income before income taxes and noncontrolling interest was $41.3 million for the third quarter compared with $6.1 million in the comparable year ago period. We reported a tax provision of $9.6 million versus a provision of $1.2 million in the prior year. These factors led to net income attributable to REX shareholders of $26.1 million for this year versus $3.2 million in the prior year's third quarter. Net income per share attributable to REX shareholders was an all-time record $1.49 for this year's third quarter versus $0.18 in the prior year. Stuart, I'll now turn the call over to you.

Thank you, Doug. Going forward, the business has continued to be strong, and we expect our fourth quarter to be significantly better than last year's corresponding quarter. We're working hard on our carbon capture project and also making progress on increasing the capacity of our One Earth plant. Zafar will discuss the ethanol business and carbon capture business in his segment. We have cash of $332 million on our consolidated balance sheet. We're earning interest on that, which should be significantly better or we hope it to be significantly better than last year. The ethanol plant expansion will use some of that cash, as will the carbon capture project. We'll also use some of that cash. Again, Zafar will discuss this in his part of the call. We're always looking for other ethanol carbon capture businesses and other entities that could benefit from our expertise. So far, we have nothing imminent on the acquisition front. We have our buybacks still available. We buy back on dips. And currently, we are not purchasing any shares. I'll now turn the conference call over to Zafar Rizvi.

Thank you, Stuart. Good morning, and thank you for joining us today for the third quarter earnings call. As Stuart and Doug previously mentioned, our team successfully capitalized on the opportunities in the commodity market and were able to achieve the best result in the history of the company. We have seen some decline in the cash margin in the fourth quarter compared to the third quarter, but we believe we will still be able to achieve significantly better results in comparison to last year's fourth quarter. According to the EIA and November 29 report, ethanol stock and production dropped during the week. We have also seen natural gas prices drop considerably, which has a positive impact on our financial results. The November 9, 2023, USDA report showed an expected output of 15.23 billion bushels of corn, the second highest on record, and a yield of 174.9 bushels per acre for the year 2023-2024. We are pleased that corn yields in Marion, South Dakota, this year are estimated at 152 bushels per acre compared to 132 bushels last year. As you remember, we had a drought in the Marion, South Dakota area for the last couple of years. Also, approximately 580,000 acres, 12% more acres where corn was planted this crop year compared to last year on Gibson City, Illinois, are less stable at 203 bushels per acre compared to 214 bushels per acre last year. But almost 400,000 more acres were planted, an increase of 4% or more compared to last year. Looking ahead, the drop in ethanol and DDG exports could negatively affect future results if this continues throughout the next year. Ethanol exports through September 2023 were approximately 1 billion gallons compared to 1.1 billion gallons in 2022 during the same period. DDG exports through September 2023 were approximately 8 million metric tons compared to approximately 8.5 million metric tons, a decrease of approximately 428,000 metric tons compared to the same period in 2022. Considering all these factors, we still believe our fourth quarter is expected to produce much better results compared to the same quarter last year, as I mentioned previously. Let me give you some updates about our carbon project. As I mentioned in our previous calls, we believe our carbon capture and sequestration project will further advance our sustainability goals and have a financial impact that will improve the company's performance for our shareholders. We have budgeted approximately $165 million to build a carbon capture comparison and storage facility, expand the One Earth Energy plant, ultimately to 200 million gallons annually, and undertake other projects related to reducing carbon intensity. The construction of the capture and compression facility has started, and long lead items have been ordered. All modular compression equipment for the facility is scheduled to be delivered by early next year. The construction of the facility is expected to be completed by the end of the second quarter, at which time testing of the facility will begin. We continue to complete the paperwork with different government agencies while we await EPA approval of the Class VI permit for carbon injection and for the Illinois Commerce Commission's approval to construct a 7.2 miles carbon pipeline. All these performance and approvals depend on several local, state, and federal agencies. Unfortunately, we cannot predict when we will receive these permits from these various agencies. In other updates, two other carbon pipeline companies recently withdrew their pipeline application. Big River Resources has entered into an agreement with Navigator, which withdrew their carbon pipeline application. We are pleased about the big milestones we have reached so far and hope different government agencies will complete their approvals early next year. We will also continue to evaluate other projects that would improve our energy efficiencies and reduce carbon intensity. If we successfully achieve our goal, we will be prepared to provide low carbon ethanol and byproducts with a social impact of reducing carbon in the atmosphere and a financial impact that improves the company's performance for our shareholders. In summary, we are pleased to announce the most profitable quarter in our history, and we believe our fourth quarter is expected to produce much better results compared to the same period last year. We continue to make progress on our carbon sequestration project and plan to increase ethanol production at One Earth Energy ultimately to 200 million gallons to maximize 45Z tax credit benefits. Once again, we could not achieve this milestone without the hard work and dedication of our colleagues. We appreciate their efforts in achieving these positive results. I will give back the floor to Stuart Rose for additional comments. Stuart?

In conclusion, we completed the best quarter in our 39-year history as a public company. We drastically outperformed the industry. As Elon Musk said, for people who are listening to his conference call, he has no patents or his patents are all open patents. We have no super patent or anything like that, but we execute better than our competitors, and our people are the real reason for that. We feel we have the best people in the industry. We know what we're doing in carbon capture; for example, everyone else has these big pie-in-the-sky projects. We focused on a project that we believe is very doable. At the moment, I believe we're in the lead in the ethanol business, in our carbon capture project ahead of any other carbon capture project that I know of in the ethanol business other than ADM, which was done long ago. We're going to show, we believe, that execution is way more important than anything else, and we feel we're better at that than anyone else. As I said earlier, we know we have good plans, we know we have good locations, but the most important thing we have is good people. Our people are terrific, and they get all the credit for this quarter. It's just a terrific job, and they deserve it. I'll now leave the forum open for questions.

Our first question comes from Jordan Levy with Truist Securities.

It's Henry on for Jordan here. Congrats first on the quarter. Start off, I know you mentioned the 2Q date before. I was wondering if you have any more color on some of the different benchmarks, both on the construction side and then from the EPA around on the CCS build that we should be looking for over the next 12 to 18 months?

I'll take that. As far as the EPA is concerned, I think it's under a technical review, and we have no idea how long that technical review will take. But as far as construction of the facility, it has already started as I mentioned previously, and the marginal unit, which will be arriving in February, and we believe that our facility will be completed by July 31 or earlier.

That does not mean we'll be a business by July 31; it may take a little longer because we still may be waiting for permits.

The construction of the facility will be completed, but we cannot operate unless we receive the EPA permit and pipeline permits I mentioned earlier. But as far as concern, the compression facility will be completed.

And then just looking ahead to next year, how are you guys looking at the ethanol landscape shaping up kind of compared to this year? And have you guys started having conversations with any of the nearby operators on potential carbon offtake given where you're at your advanced timeline for your current carbon capture projects?

I'm sorry, could you repeat that question again? I wasn't sure what exactly you're asking, please.

Just a quick one on kind of the ethanol landscape, how you're seeing that shaping up for next year? And then just anything you have on any conversations if you have begun having them with nearby operators for a potential carbon offtake given where you're at with the CCS buildout?

I think as far as ethanol is concerned, looking forward, as I mentioned, we are in a commodity business. I think it's very hard to predict more than even a couple of months or three months. So at this stage, I really cannot predict what happened with the commodity market as it changes every single day or every month. When we see any opportunity, we will be there to materialize that. So I really cannot predict what will happen next year. But I can say the fourth quarter will certainly be much better than last year's same fourth quarter. But as far as the carbon is concerned, I think once we complete the facilities, we will know by the end of 2025. At that time, we'll see if there are other sources of carbon available from anyone else. Otherwise, our expansion of the ethanol facility will still be a very feasible project that uses 45Z, and even 45Q, where the return on investment is much higher than we expect.

One thing on your question: you’ve probably realized you’ve been following our stats for a long time. Zafar and his team have proven quarter after quarter that they know the commodity business and are really good at it. Other people with all their futures contracts and the big floors of commodity traders and everything have drastically underperformed what Zafar and his team have done. And there’s no reason if it’s happened in the past that it’s going to happen in the future. But when you look at that team and what they have done, I think you have to say that we know this business and that we’re better. Again, as I said in my call, we are better executing than everyone else. And again, on the carbon capture, we hope to have it completed with permits by the end of next year, which would be a huge addition to our earnings per share. So we’ll see what happens. That’s the thing that Zafar and his team are putting the most effort into, and if they do it like they’ve done in the ethanol business, we’re in really good shape.

Yes. I would like to expand on that. As we increase our production to 200 million gallons, every reduction of $0.52 per gallon translates to $0.02 a gallon. The carbon sequestration cost is estimated to be between $0.30 and $0.35. If we can lower our carbon footprint and intensity while pursuing various other projects, we have the potential to secure between $500 million and $600 million in tax credits over three years with the 200 million-gallon ethanol facility.

Again, that would be the most we can generate. We don’t want people putting that into their numbers, but that’s what we’re working so hard to achieve, and if we even get to half of that, it’s all an increase in earnings per share. So we have a big goal out there, and we’re going to work hard to get as much of it as we can.

That’s the reason we are allocating $165 million to it; it’s a major investment, and it certainly is a risk, but we believe the return is much better and much higher.

Our next question comes from Chris Sakai with Singular Research.

Just a question on where are you seeing the most demand for ethanol?

Where we see the most demand in ethanol, you mean on the export side?

Right.

I think mostly right now, we have seen the demand in Canada, and we have recently seen the United Kingdom, Netherlands, South Korea, and Colombia. So those are the top five. We have seen some in India also. So certainly, a lot of these countries are importing. Canada is always number one.

Okay. Great. How are you guys seeing the price of corn and dried distillers grain and modified distillers grain heading into the next quarter?

I think the corn is generally speaking, as you can see, that’s trading about $4. Yesterday, it was $4.49, and today has seen some increase. So I think that, as I mentioned previously in the South Dakota area, we have seen some negative bases; we have seen some bases in overall in Illinois that have gone up a little bit. We have seen this in Indianapolis and some other parts where it was not as good production compared to last year is positive basis. But otherwise, most of the area is negative basis.

And what about the price of natural gas as we head into the winter?

The natural gas price has considerably dropped. As I mentioned, we have seen it is less than $5 for January and February. And we have seen that about for March as low as $2.56 or $2.67. So that will be a major impact, as I mentioned in my previous prepared remarks that we have seen the drop in natural gas pricing.

Our next question comes from David Locke with Old Mammoth Investments.

First off, I'd really like to thank you guys for taking questions. There are some teams out there that seem sort of afraid to take questions from their investors in a public forum. So thanks for your time and your candor in doing this.

Thank you. Thank you for asking questions.

So my first question is, the industry overall has been beset by a ton of operational problems in the last few months, explosions, fires, etc. To what extent has that contributed to the good financial margin environment for the last half year or so, and how have you guys managed to sidestep all of that? And relatedly, how old are your plants relative to the industry average?

We have some of the newest plants in the industry. They're under, I believe, under 10 years old; some of these older plants just should be shut down, to be honest with you. The fires and all that stuff may have helped us a little bit. I don’t know if they had commitments where they had to buy product on the open market on the spot market. If they did, that would help. But I think you have to consider that we have a number of plants; some we only own a small part of, but we have many plants, and these are all newer plants. We made a decision from the beginning to go with the best builder in the best plants, and I don't know of any operational problems in these plants. They're just better built. We service and conduct extensive servicing on these plants semi-annually, and they're just state-of-the-art, better plants. That’s all I can say, the Vegan ICM plants. When you see a 100 million-gallon Vegan ICM plant, very seldom do you see anything materially go wrong with those plants. There can always be a tornado or something, but the plants themselves are built terrifically. And in our case, we take extremely good care of those plants.

I will add to that is, I think safety is our number 1 priority. We always review that every month; the safety procedure is crucial, and we are making sure all the safety procedures are followed, drills are happening, and we closely monitor safety protocols. As Stuart mentioned, there's a couple of plants that have had incidents — I think one plant in South Dakota was about only 70 million gallon plants that were shut down for a while; ADM plants were shut down for maybe a couple of weeks more. I think there was maybe some minor impact, but if you look at the commodity market, that also makes a difference when you have, for example, corn trading at $4.88 and ethanol trading at $2.36. There are plenty of margins at that time to look at it and determine that this is good enough to lock in and move forward. So it really depends on the timing of execution to secure profits.

We strongly believe we have the best commodity trading team, not just the best plants, but I believe we have the best commodity trading team led by Zafar in the ethanol business.

Our consolidated plan for build is between 2007 and 2009, if I can just add that on.

So as you guys continue to search the M&A market but not find anything that's worthwhile, are you looking for plants that look like the ones that you have? Or are there dumpster diving opportunities for you to bring your management expertise and maybe fix up one of these older ones?

We don’t dumpster dive. So that won’t be us. We’re not fix-up artists. I’m not saying that we couldn’t do it, but we came very close to buying plants that are similar to ours, Vegan ICM plants that were 100 million gallons, and for one reason or another, it hasn’t worked out. That would be our preference, and that would be what we would look for. Unfortunately, or fortunately, whatever you want to say, most plants are really doing well, and the price has gone up very much on those plants. So I don’t see anything coming imminently. But in this industry, you never know what might happen.

Okay. How do you guys feel generally about the broad supply/demand environment for ethanol right now? I mean we’ve been oversupplied for the better part of 1.5 decades, it feels like, although we've had consistently decent margins all year this year with some really high ones over the summer and early fall. Have we finally managed to balance with a little bit of increased demand and some supply coming offline?

I think — go ahead, Stuart, you want to say.

I was going to say, in my opinion, it's a commodity, and you never know what will happen. If there’s continued this demand, there will always be some expansion and the supply will keep up with it. But we have hoped, as an industry, that it may or may not happen. The government has given a lot of support for it happening, such as supplying things like jet fuel. We also would hope to be in a very low carbon fuel, which creates demand for our fuel in addition to what it is now. There are more and more pumps; I see them in Dayton. I see them even around the country, more and more pumps that are greater than 10% ethanol in cars today that are manufactured today that can run on 15% ethanol. This would provide a 50% increase in gas stations, which can make more money on 15% ethanol. They have incentives. There are many factors moving in our direction.

Okay. And then my last question is on the pipeline in Illinois. Do you guys need any eminent domain rulings to make that happen? It seems like there have been some problems in Iowa recently with that. The political climate is sort of a “clown show” with the regulations. I’m curious about the gating items for getting that installed.

Yes, I can answer that a little bit. I think if you look at the Illinois law, it has clearly stated that we can use Eminent domain regarding the pipeline. As far as our attention goes, at this stage, we do not believe that we have to use Eminent domain because we have approximately 4 miles of pipeline to the well number 1. By the time we reach well number 2 and 3, the last well is only 7.2 miles of pipeline. So we may have some difficulties; we do not know. But we do not believe we will have to use Eminent domain.

And keep in mind, as Zafar has said, we're only going 4 miles, and a lot of that 4 miles is over farmland where these are — we’re helping the people that we’re dealing with for these 4 miles are selling their corn to us. They have a big incentive to make this happen because they’ll do well if we do well. It’s been a great partnership for many years since at least 2009. We believe we've done good for them, and they’ve done good for us. So it’s not as complicated; you’re thinking these other pipelines in Iowa are going hundreds of miles. We're going 4 miles. We don’t think it’s going to be an issue; if it is, Illinois law backs us up, but we don’t believe it will be an issue at this time.

Yes, exactly. And I think Stuart is right. As you mentioned, the opposing side will have their opinions, and that can happen; we cannot stop them. That’s what the values they think they have. But as far as we're concerned, we continue to concentrate on what we have to provide and what we have to do.

Okay, thanks a bunch for the clarification and nuance on that. That's all I've got. And thanks for another excellent quarter, and congratulations on performing remarkably well.

Thanks for the questions.

Mr. Rose, there are no further questions at this time. I will now turn the call back to you.

We'd like to thank everyone for listening, and we look forward to talking to you at the end of the next quarter. Thank you. Bye.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.